Natural-resource depletion, habit formation, and sustainable fiscal policy
Subtitle: lessons from Gabon
By: prepared Daniel Leigh and Jan-Peter Olters.
Contributors: Olters, Jan-Peter.; International Monetary Fund. Fiscal Affairs Dept.; International Monetary Fund. African Dept.
Series: IMF working paper -- WP/06/193
Publisher: International Monetary Fund, Fiscal Affairs and African Depts.
Published: 2006
Place of publication: [Washington, D.C.]
Language: eng
Number of pages: 28
Subjects: Fiscal policy -- Gabon -- Econometric models.; Natural resources -- Gabon -- Econometric models.; Petroleum industry and trade -- Gabon -- Econometric models.; Sustainable development -- Gabon -- Econometric models.
Description: While models based on Friedman's (1957) permanent-income hypothesis can provide oil producing countries with long-run fiscal targets, they usually abstract from short-run costs associated with consolidation. This paper proposes a model that takes such adjustment costs (or "habits") into account. Further operational realism is added by permitting differential interest rates on sovereign debt and financial assets. The approach is applied to Gabon, where oil reserves are expected to be exhausted in 30 years. The results suggest that Gabon's current fiscal-policy stance cannot be maintained, while the presence of habits justifies smoothing the bulk of the adjustment toward the sustainable level over three to five years.
Notes: Caption title.

"August 2006."

Includes bibliographical references (p. 25-28).

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